Hedonic Quality Adjustment in the CPI

Overview

The CPI is calculated using prices for a fixed basket of goods and services through time. While the basket is periodically revised to reflect changing consumer expenditures, some items being priced in the sample come and go from the marketplace, making collection of these prices from month to month difficult. When an item is no longer available in the marketplace, a similar replacement item is selected. Often there are no similar items from which to choose, and as a result, a less comparable item is selected, potentially introducing quality change and an associated price differential into the index.
The hedonic quality adjustment method removes any price differential attributed to a change in quality by adding or subtracting the estimated value of that change from the price of the old item.

Hedonic quality adjustments for rent and owners equivalent rent are used primarily to adjust for the age of a
rental unit, and for utility adjustments.
Information on age bias adjustments for shelter can be found at Updating the Housing Age-Bias Regression Model in the CPI,
at (PDF) .
Information on shelter utility quality adjustments can be found at How the CPI measures price change for Owner s equivalent rent of primary residence (OER)
and Rent of primary residence (Rent), at PDF .
Additional information on both age bias and utility quality adjustments can be found at
Updating the rent sample for the CPI Housing Survey, at